Carmino Company Is Considering an Investment in Equipment That Is $\begin{array}{lr}\text { Year 1 } & \$30,000 \\\text { Year 2 } & 15,000 \\\text { Year 3 } & 7,500 \\\text { Year 4 } & 3,750\end{array}$

question 32

Multiple Choice

Carmino Company is considering an investment in equipment that is expected to generate an after-tax income of $6,000 for each year of its four-year life. The asset has no salvage value. The firm is in the 40% tax bracket. The net book value (NBV) of the investment at the beginning of each year is expected to be as follows: $\begin{array}{lr}\text { Year 1 } & \$30,000 \\\text { Year 2 } & 15,000 \\\text { Year 3 } & 7,500 \\\text { Year 4 } & 3,750\end{array}$ Calculate this asset's accounting (book) rate of return (ARR) on average investment (which is defined as a simple average of the average book value of the asset for each year of its four-year life) . Round the final answer to the nearest whole %.

• A) 15%.
• B) 27%.
• C) 36%.
• D) 43%.
• E) 58%.

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Definitions:

Reaction Formation

A defense mechanism in which an individual unconsciously replaces unacceptable thoughts or feelings with their opposites.

Defence Mechanism

A psychological strategy unconsciously used to protect oneself from anxiety arising from unacceptable thoughts or feelings.

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An intense feeling of deep affection towards someone or something, characterized by warmth, care, and a desire for the well-being of the object of love.

Critical

Expressing adverse or disapproving comments or judgments.